Wall Street saw a mixed open on Tuesday evening, Beijing time, as the Dow Jones Industrial Average rose thanks to robust corporate earnings, while the Nasdaq Composite fell amid continued selling pressure in semiconductor stocks. Traders are assessing the impact of the latest wave of earnings reports.
The Dow advanced 328.56 points, or 0.63%, to 52,538.64. The Nasdaq dropped 326.63 points, or 1.31%, to 24,605.46. The S&P 500 slipped 23.41 points, or 0.32%, to 7,389.77. The divergence in major US indexes reflects traders digesting a fresh batch of earnings, while the semiconductor sector remains under pressure.
Sherwin-Williams, a Dow component, rose 7% after its second-quarter results exceeded expectations. Fellow Dow member Coca-Cola also surged more than 46% after beating earnings estimates.
The sell-off in US chip stocks began overnight in Asian markets. South Korea's KOSPI index plunged as much as 11% during Tuesday’s session, triggering a circuit breaker, and closed down 732.09 points, or 10.84%, at 6,023.66. This marks its largest single-day drop since March 4. Samsung Electronics and SK Hynix both suffered heavy losses. The decline then spread to US futures markets, as investors grew skeptical about the sustainability of AI infrastructure spending.
The VanEck Semiconductor ETF (SMH) fell 4%, with Micron leading the decline, dropping 9%. Arm Holdings and Teradyne also fell 8% each.
Wall Street experienced volatile trading in the previous session. The Dow gained ground while the Nasdaq retreated, as a wave of unwinding positions in the semiconductor sector weighed on the tech-heavy index. This market unease reflects uncertainty ahead of a busy week of big tech earnings reports, with Amazon, Meta Platforms, and Microsoft set to release results, and Apple also reporting this week. The trajectory of the chip sector hinges on whether hyperscale companies can maintain their spending levels, even as these tech giants themselves show signs of fatigue.
The Federal Reserve’s interest rate decision is due on Wednesday. Investors expect the central bank to hold rates steady but will be looking for more clarity on the future path of monetary policy. According to the CME FedWatch Tool, federal funds futures pricing indicates a 28% probability of a 25-basis-point rate hike in September.
"Our call is for no change," said Padhraic Garvey, Head of Americas Research at ING, in a note Tuesday morning. "We see inflation expectations as sufficiently benign to be comfortable. Additionally, the structure of the yield curve does not support a hiking cycle. Specifically, the 5-year yield is expensive relative to the curve."
"It is unusual for the Fed to begin a hiking cycle when the 5-year yield is trading expensive versus the curve. If we are wrong and the Fed does hike (either at this meeting or the next), the curve structure suggests that any hike would subsequently be reversed, with the federal funds rate ending up lower than today within a 12-month window."
Traders are also closely watching oil prices, following reports that Iran held talks with officials from Saudi Arabia and Oman about reopening shipping lanes in the Strait of Hormuz. Crude oil extended its sharp decline from Monday, with Brent crude falling 1.7% to $86.82 per barrel and WTI crude dropping 1.6% to $81.31 per barrel.